Understanding Credit Scores: Separating Fact from Fiction

Last week, we talked about how you actually have more than one credit score. If you missed it, you can check it out here. This week, we're tackling another common belief: that some credit scores are fake or not accurate. You might have seen people online saying things like, "Get your REAL score from Experian!" or "The score you see on Credit Karma isn't the right one." But is there any truth to this? Let's find out!

Myth #2: Some Credit Scores Are Fake or Inaccurate

The truth is, the idea of a "fake" or "inaccurate" credit score is really a misunderstanding. All credit scores are real. The numbers you see are the result of data from your credit report being crunched by a specific formula, or algorithm. These algorithms take the information in your credit report and turn it into a three-digit score. It's not pulled out of thin air or made up.

So, if they're all real, what's the deal? The better way to describe the differences between credit scores is to say they are "relevant" or "irrelevant," not "accurate" or "inaccurate."

It's All About Relevance

Think of it like this: a FICO 8 score you get from Discover, Experian, or Bank of America isn't more "accurate" than a VantageScore 3.0 from Credit Karma, Credit Sesame, Chase, US Bank, or WalletHub. However, the FICO 8 score is far more relevant. Why? Because lenders (the people who give you loans) are much more likely to use FICO scores when they decide whether to lend you money.

You could even say that a VantageScore 3.0 is almost irrelevant when it comes to getting a loan. But that doesn't make it a "fake" score. It just means that most lenders don't use that particular scoring model to assess risk.

The "FAKO" Score Misconception

You might have even heard the term "FAKO" or "FACO" score. This usually refers to a credit score that isn't a FICO score. The term is meant to suggest "Fake FICO," but it's misleading. These scores aren't less accurate; they simply aren't as meaningful when lenders are making decisions.

Why This Matters

It's important to use the right words when explaining the differences between credit scores. Telling someone a score is "fake" can be confusing and make them think the number is completely meaningless. The truth is, every credit score is based on your credit data. The key is understanding which scores are actually used by lenders.

Understanding FICO and VantageScore

To really understand this, let's dig a little deeper into the two main types of credit scores: FICO and VantageScore.

FICO: FICO (Fair Isaac Corporation) is the most widely used credit scoring system. Most lenders use FICO scores to determine your creditworthiness. There are different versions of FICO scores, such as FICO 8, FICO 9, and industry-specific scores for auto loans or mortgages.

VantageScore: VantageScore was created by the three major credit bureaus (Experian, Equifax, and TransUnion) as an alternative to FICO. The goal was to create a more consistent and predictive scoring model. VantageScore versions include VantageScore 3.0 and 4.0.

Key Differences Between FICO and VantageScore

While both FICO and VantageScore use your credit report data to calculate your score, there are some key differences:

• Scoring Range: Both FICO and VantageScore have a score range from 300 to 850.
• Data Required: FICO typically requires at least six months of credit history to generate a score. VantageScore, in some cases, can generate a score with as little as one month of credit history.
• Treatment of Medical Debt: Newer versions of FICO and VantageScore treat medical debt differently than other types of debt. They tend to be less harsh on your score if you have unpaid medical bills.

Why Lenders Prefer FICO

Even though VantageScore is designed to be a more competitive scoring model, most lenders still prefer FICO. This is partly because FICO has been around longer and lenders are more familiar with it. It's also because FICO scores have been shown to be very good at predicting whether someone will repay a loan.

What Score Should You Focus On?

If you're trying to improve your credit, it's a good idea to keep an eye on both your FICO and VantageScore. However, since most lenders use FICO, that's the score you should focus on the most. You can usually get a free FICO score from your credit card company or bank. You can also purchase your FICO scores from myFICO.com.

Where to Find Your Credit Scores

Here are some places where you can check your credit scores:

• Credit Card Companies: Many credit card companies offer free FICO scores to their cardholders.
• Banks: Some banks also provide free credit scores to their customers.
• Credit Karma: Credit Karma provides free VantageScore 3.0 scores from TransUnion and Equifax.
• Credit Sesame: Credit Sesame also offers free VantageScore 3.0 scores.
• Experian: Experian offers a free credit report and a free Experian credit score, which is based on their own scoring model.
• myFICO: You can purchase your FICO scores and credit reports directly from myFICO.com.

The Bottom Line

Don't get caught up in the myth of "fake" or "inaccurate" credit scores. All credit scores are real, but some are more relevant than others. Focus on understanding your FICO scores, as these are the ones that lenders are most likely to use. By knowing your scores and what affects them, you can take steps to improve your credit health and achieve your financial goals.